Showing posts with label fico 2. Show all posts
Showing posts with label fico 2. Show all posts

What credit score do mortgage lenders use?

The best-known credit scores are going to fall under either the FICO or VantageScore brands. There are multiple generations of each score brand, as every few years, the score developers create newer versions. So, for example, there’s a VantageScore 1.0, 2.0, 3.0, and 4.0.

In most lending environments outside of mortgages, it’s hard to know which specific credit score a lender will use to evaluate your application. And, even if you knew your lender used a FICO Score or a VantageScore credit score, you still would not know which generation of the score it is using.

For example, you may apply for an auto loan with one lender that checks your FICO Auto Score 8 based on your Experian credit report. Yet, if you apply for financing with a different auto lender, it may opt to check your VantageScore 3.0 score based on TransUnion data.

The only way to know for sure is to ask the lender which credit report and which credit score version it plans to check, but that isn’t a guarantee that they’ll tell you.

The mortgage industry is different. Because of the aforementioned FHFA mandate, mortgage lenders must use the following versions of FICO’s scoring models:


FICO Model

Description
FICO 9Newest version. Not widely used.
FICO 8Most common. Used for Auto and Bankcard lending.
FICO 5Used by mortgage lenders. Built on data from Equifax.
FICO 4Used by mortgage lenders. Built on data from TransUnion.
FICO 2Used by mortgage lenders. Built on data from Experian.


  • Experian: FICO Score 2, sometimes referred to as FICO V2 or FICO-II
  • TransUnion: FICO Score 4, sometimes referred to as FICO Classic 04
  • Equifax: FICO Score 5, sometimes referred to as BEACON 5.0


Why Do Mortgage Lenders Use Older FICO Scores?

The reason mortgage lenders use older FICO Scores is because they don’t have a choice. They are essentially forced to use them.

Unlike every other industry, mortgage lenders don’t have the flexibility to choose the scoring model brand or generation they want to use. Mortgage lenders must follow the direction of the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, as it pertains to scoring models.

What credit score do mortgage lenders use? Which FICO Score Generation Do Mortgage Lenders Use?


The GSEs play an important role in mortgage lending. These publicly traded companies buy mortgages from banks, bundle them together, and sell them to investors. This frees up funds so that banks can offer new mortgages to additional homebuyers.

For a bank to sell a mortgage to Fannie Mae or Freddie Mac, the loan has to meet certain guidelines. Some of these guidelines require borrowers to have a minimum credit score under specific FICO Score generations.

If a lender uses a different scoring model other than what the GSEs approve when it underwrites a mortgage, it probably won’t be able to sell that mortgage after it issues the loan. This limits the lender’s ability to write new loans because it will have less money available to lend to future borrowers

When applying for a mortgage in Kentucky, it's crucial to understand that lenders utilize specific FICO® score models tailored for mortgage underwriting. These models differ from the scores commonly accessed through consumer credit monitoring services.

FICO® Score Models Used by Kentucky Mortgage Lenders

Mortgage lenders in Kentucky, consistent with industry standards, rely on the following FICO® score versions: mylouisvillekentuckymortgage.com

These are collectively known as the "classic" FICO® models and are mandated for use in underwriting loans backed by entities such as Fannie Mae, Freddie Mac, FHA, VA, and USDA

.mylouisvillekentuckymortgage.com+1Louisville Kentucky Mortgage Loans+1

Importance of the Middle Credit Score

Lenders typically obtain a tri-merge credit report, encompassing scores from all three major bureaus. The middle score—the one that falls between the highest and lowest—is used to assess your creditworthiness. For joint applications, the lower middle score between co-borrowers is considered.  

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Discrepancies Between Consumer and Mortgage Credit Scores

It's common for consumers to notice differences between the credit scores they access through services like Credit Karma and those used by mortgage lenders. This is because consumer platforms often provide scores based on models like FICO® 8 or VantageScore 3.0, which are not utilized in mortgage lending. These consumer scores can be 20–40 points higher or lower than the mortgage-specific scores



FICO® Scores Used by Kentucky Mortgage Lenders Kentucky mortgage lenders primarily use specific, older versions of FICO® scores when evaluating home loan applications. These are not the same scores often seen by consumers via free credit monitoring services or used for credit cards and auto loans.  Main FICO® Scores for Mortgages FICO® Score 2 (Experian)  FICO® Score 4 (TransUnion)  FICO® Score 5 (Equifax)

Strategies to Enhance Your Mortgage Credit Score

To improve your mortgage-specific FICO® scores:

  • Maintain Low Credit Utilization: Aim to keep your credit card balances below 30% of your credit limits.

  • Limit New Credit Inquiries: Avoid applying for new credit lines 30–60 days before seeking mortgage pre-approval.

  • Address Inaccuracies: Dispute any incorrect information on your credit reports directly with the credit bureaus.

  • Prioritize Paying Down Revolving Debt: Reducing balances on credit cards can positively impact your scores.

Link to article below

https://www.badcredit.org/how-to/which-fico-score-do-mortgage-lenders-use/

What goes into your FICO® Scores for A Kentucky Mortgage ?

 

What goes into your Kentucky Mortgage FICO®  Scores ?


The FICO® Score is calculated using 5 categories of data:

  • 35% Payment history: Whether you've paid past credit accounts on time.
  • 30% Amounts owed: The amount of credit and loans you are using.
  • 15% Length of credit history: How long you've had credit.
  • 10% New credit: Your frequency of credit inquiries and new account openings.
  • 10% Credit mix: The mix of your credit cards, retail accounts, installment loans and mortgages.

Your FICO Scores are unique, just like you. They are calculated based on the categories described above, but for some people, the importance of these categories can be different.

What goes into your FICO®  Scores for A Kentucky Mortgage ?


What goes into your FICO®  Scores for A Kentucky Mortgage ?

Joel Lobb  Mortgage Loan Officer

American Mortgage Solutions, Inc.
10602 Timberwood Circle
Louisville, KY 40223
Company NMLS ID #1364

Text/call: 502-905-3708
fax: 502-327-9119
email:
 kentuckyloan@gmail.com

http://www.mylouisvillekentuckymortgage.com/


NMLS 57916  | Company NMLS #1364/MB73346135166/MBR1574


The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only. The posted information does not guarantee approval
nor does it comprise full underwriting guidelines. This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the view of my employer. Not all products or services mentioned on this site may fit all people.
NMLS ID# 57916, (www.nmlsconsumeraccess.org).